Yes/No. Yes you can using the hacked way of tethering, hence you connect. No, because the iPhone is not a router nor does it's Wi-Fi chip support that type of functionality; in the end only 1 laptop can connect.
Actually (surprise, surprise), although the wireless driver in the iPhone cannot kick the WiFi chip into "802.11 Infrastructure" (Access Point) mode, the tethering support in iPhone OS 3.x is, in fact, a full-fledged routing+NAT(+DHCP server) engine!
Try this sometime: hook your iPhone up to your computer with USB, enable tethering, and then put the "Apple Ethernet" device into a bridge with another ethernet-ish interface (this can be easily accomplished in Windows XP; I don't know how to do it in Mac OS). Connect some other computer(s) to the other port in the bridge. In fact, go crazy: bridge the iPhone to the ethernet port, and then hook that ethernet port up to a switch with a bunch of other computers connected to it. (If you have some other router/internet connection on that network, unplug it for now.) Now watch in amazement as your iPhone proceeds to hand out as many IP addresses out to computers who ask for them! All of the computers will be on-line.
This is, in fact, how MyWi works: unlike apps such as PDANet which implement everything themselves, MyWi is really just a clever, easy-to-use wrapper around the iPhone's native tethering (which is why it only supports OS 3.0 and above). The routing engine, NAT, DHCP server, etc. were not actually written by the MyWi author. What he did manage to do was to figure out how to get the iPhone WiFi to join a nonexistent Ad-Hoc/peer-to-peer network without it already being broadcast by something else. Once that was accomplished, he bound the "LAN-side" of the Tethering NAT router to the wireless interface instead of Bluetooth or USB. MyWi supports serving internet to multiple computers simultaneously already because
the built-in iPhone Tethering already does, natively.
It's very clever and very slick, but not nearly as much work went into that app vs., say, something like PDANet. I'd have liked it if the author also shared his secrets for creating an Ad-Hoc network and other such things, but in the end I happily paid the $10 anyway.
-- Nathan
